A CEDC is an opportunity for New Brunswickers to channel their investment dollars into their local economy. CEDC stands for “CommunityEconomic Development Corporations”. A CEDC is a pool of money raised by selling shares (or other eligible securities) to individuals in a defined community. These funds are controlled by a local group of officers and directors, who may be chosen by the founders and promoters of the CEDC or by the CEDC’s investors at an annual general meeting.

In order to qualify, the project must have a measureable financial return. A CEDC is not meant to fund projects that do not generate revenue. For example, developing a new children’s playground would not be an eligible use of CEDC funds since it does not produce a revenue stream. On the other hand developing a farmer’s market or a skating rink with rental income may be eligible projects.

The minimum amount to be raised by a CEDC within a 12 month period is $10,000 and the maximum amount of capital that may be raised is $3,000,000. If the CEDC doesn’t raise the minimum amount it requires, all monies are returned to the investor.

If you are considering investing in a CEDC, you will fill out an Expression of Interest Form. This does not mean you are committing to investing, but tells the company that you are interested in knowing more about the opportunity. The company will send you an Offering Document to help you make your decision. This document outlines what you would be purchasing with your investment dollars, who is making the shares (or units) available, what the total value of the offering should be and how the funds are to be used. It is important to remember that because these are exempt market investments, they are risky investments. Neither FCNB nor the Government of New Brunswick assesses, reviews, or approves the merits of the shares, or reviews the offering document.

Take the time to fully read the offering document and be sure that you understand the business plan and the risks associated with the investment opportunity. You may also want to discuss any investments you are considering with your financial adviser. They can help you determine if the investment fits your risk tolerance level, and if it is appropriate for you.

The minimum investment per individual is $1000. The maximum amount an individual can invest is $250,000. If the investor is a trust or a corporation, the minimum amount is $50,000.

Exempt MarketsWhen you purchase shares or units in a CEDC, you are investing in the “exempt market”. Exempt Market opportunities are riskier than opportunities that trade on public stock exchanges because you are not provided with the same level of public disclosure or media information and you do not have the same level of liquidity as publically traded securities.

IlliquidityCEDC shares are illiquid. This means they cannot be sold easily. If there is a chance you will require the money that you intend to invest in the short term, a CEDC may not be a good fit for you. Any investor in a CEDC has a cooling off period of two business days after they sign the agreement to buy the securities.

This cooling off period gives you time to change your mind without penalty. After those two days, and if the CEDC raises the minimum amount it needs, there is a holding period of four years. You may not sell your shares (or units) before the holding period is up, or you will be required to repay your tax credit. Even after the holding period is up, there is no secondary market for these shares (or units). This means that unless the CEDC is willing (and able) to buy your shares (units) back from you there may be no one for you to sell them to.

Less Information ProvidedUnlike a company that is listed on a public stock exchange and registered with FCNB or another securities regulator, start-ups and small businesses are not required to file audited financial statements or other periodic disclosure. You may receive much less information about the business than you might expect. Start-ups and small businesses also rarely attract much media coverage. While a great deal of information and analysis is often published about large corporations, this is not always the case for start-ups.

Start-Up RiskStatistically speaking, a high percentage of start-ups and early stage businesses fail. Investing in these businesses is risky, and you could lose your entire investment. If your risk tolerance is low, investing in a start-up or early stage business may not be suitable for you.

Uncertain ReturnsReturns are always uncertain and depend on many factors, some of which are beyond the control of both investors and the business. You should only invest if you can afford to lose your whole investment.

Returns on Your InvestmentCEDC investors may receive returns in the form of dividends on their investment either as cash distributions, upon the sale of shares.

Tax Benefits Besides investing in a local business and contributing to the growth of your community, investing in a CEDC may also carry tax benefits. The CEDC program is linked to the New Brunswick Small Business Investor Tax Credit (SBITC) program which offers a 50% personal income tax credit to investors on eligible investments made in CEDCs.

RRSP EligibleYour investment may also be eligible to be held in a self-directed RRSP. This would provide the same tax-deferral benefits as any other RRSP contribution (within your annual contribution limit). To determine the eligibility of your self-directed RRSP, please contact Canada Revenue Agency.

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